Time for the profession to PAYE

I can scarcely remember a greater national furore about a tax-related matter
than the PAYE scandal that has hit HMRC in the last few weeks. Newspapers have
filled their bereft August columns with tales of incompetence and advice to
taxpayers about how to avoid paying up.

But is this really the shock-horror surprise that many journalists would have
us believe? And is HMRC the only one that should be held responsible?

The fact that the PAYE system is a complete mess and most code numbers are
wrong has been known to practicing accountants for years. HMRC has also known
about the system failures, so the idea that the problem has only now come to
light because of a new computer system that has identified the errors is
nonsense.

One of the main reasons why most codes are wrong is because HMRC has over
many years been starved of resources by the government. As a result of this,
morale is terrible and many good people have left.

It is generally recognised that the PAYE system itself belongs to a bygone
age and urgently needs a root and branch overhaul. The proliferation of tax
rates and allowances, and the increasing trend away from single employments
makes a system that was devised over half a century ago wholly unsuited to
today’s world. The surprise is that it has only now received the publicity it
deserved.

But the media has overlooked the greater scandal.

While much has been written about the individuals who, honestly believing
their tax affairs to be in order, are now being hit with unexpected demands,
minimal attention has been given to the vastly larger number of taxpayers who
are due rebates. Of the affected taxpayers, around three-quarters have been
paying too much tax through PAYE compared to those who have not been paying
enough, year-on-year, over a long period of time. Why were these overpayments
allowed to continue?

Practising accountants have known for years that errors in PAYE codes have
reached intolerable levels. The “Working Together” initiative is surely a forum
where this issue should have been discussed, highlighted and resolved.

The professional bodies can hardly claim that they were unaware of the
problem.
Perhaps a clue is in the wording of the key aims of Working Together, as
published on HMRC’s own website. “Working Together is a partnership with the
main agent representative bodies to improve all areas of our operations for the
benefit of agents, advisers and their clients.” Why is there no mention of the
unrepresented taxpayers?

For taxpayers within self-assessment (all or virtually all represented
taxpayers), incorrect code numbers are no more than a minor inconvenience.
Despite the temporary cash flow issues, the problem is usually resolved when the
self-assessment tax return is submitted. But there is no such comfort for
unrepresented taxpayers, not within self-assessment, who face the permanent
deprivation of funds.

I believe that the profession has a case to answer. There is surely a moral
obligation on us to assist in the smooth working of the tax system for all, and
our myopic insistence on only looking after the interests of our clients does us
no credit.

Andy White is a tax partner at accountancy firm CBW